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Preparing And Using Financial Statements

The assets and liabilities of Y Service Inc. as of December 31, 2008, and revenue and expenses for the year ended December 31, 2008 are listed below: Senden

Accounts Payable

$21,000

Property tax expense

$5,000

Accounts Receivable

25,000

Rent expense

3,000

Advertising expense

10,000

Salary expense

85,000

Building

140,000

Salary payable

12,000

Cash

10,000

Service Revenue

200,000

Furniture

20,000

Share Capital

75,000

Interest expense

4,000

Supplies

3,000

Land

98,000

Note Payable

95,000

Beginning Retained Earnings were $50,000 and dividends totalled $50,000 for the year.

Required:

a. Prepare the Income Statement for the year ended December 31, 2008
b. Prepare the Statement of Retained Earnings for the year
c. Prepare the Balance Sheet at December 31, 2008
d. Based on the financial statements prepared, answer the following questions:

1. Was Y Service Inc. profitable during 2008? If so by how much?

2. Did Retained Earnings increase or decrease? What is the amount of the change?

3. Which is the greater total, liabilities or total equity? Who owns more of the company's assets, the creditors or the shareholders?

Question 2

a. If you could pick a single source of cash for your business, what would it be? Why?

b. How can a business earn large profits but have a small balance in Retained Earnings?

c. How can a business lose money for many years and still have plenty cash?

d. Give two reasons why a business can be profitable for many years and still have a cash shortage?

e. Suppose your business has $80,000 worth of liabilities that must be paid within the next three months. Your liquid (can be turned into cash quickly) assets total only $60,000, your sales and collections from customers are slow. Identify two ways to finance the remaining $20,000 you will need, so you can pay all of the liabilities when they are due.

Solution Preview

See attached Excel file.

You did not state whether Supplies was an inventory item (i.e., an asset) or an expense. Because you did not specify, I listed it as an asset. If it is an ...

Solution Summary

Using an Excel spreadsheet, this solution illustrates how to prepare a balance sheet, income statement, and statement of retained earnings using a list of accounts. It also answers these questions:

a. If you could pick a single source of cash for your business, what would it be? Why?

b. How can a business earn large profits but have a small balance in Retained Earnings?

c. How can a business lose money for many years and still have plenty cash?

d. Give two reasons why a business can be profitable for many years and still have a cash shortage?

e. Suppose your business has $80,000 worth of liabilities that must be paid within the next three months. Your liquid (can be turned into cash quickly) assets total only $60,000, your sales and collections from customers are slow. Identify two ways to finance the remaining $20,000 you will need, so you can pay all of the liabilities when they are due.

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